Are we due for a 20% market collapse?

(5:15)

Mark Cook, a veteran investor who called three previous market crashes, believes the U.S. market is in trouble and is set for a decline, to the tune of a 20% pullback. He joins MoneyBeat to explain. Photo: Getty Images.

Investors were dismayed over the revenue deceleration, because Amazon typically sees its heftiest profit margins from this business. AWS comes under Amazon’s “other” revenue, which grew 38% in the quarter, after surging 60% in the first quarter, and is believed to make up the bulk of this segment.

Amazon’s high-flying shares fell more than 10% after its results and shed more ground in trading on Monday. Several brokerage firms have cut earnings estimates or lowered their ratings on the stock.

“Investors are less patent than before regarding ongoing margin pressure,” Canaccord Genuity analyst Michael Graham said in a note late last week.

Shopping spree

Still, Amazon keeps investing in new products, such as its new Fire Phone, warehouses, and new services including unlimited streaming of music and videos, grocery delivery and now reports of a mobile credit card reader to compete with Square and PayPal. It is clear the company wants to rule or be involved in every aspect of digital shopping.

“They are trying to be an ecosystem for all your digital needs,” said Colin Gillis, an analyst with BGC Partners. Trying to create an entire Internet ecosystem on par with that of Google Inc.
GOOG, -1.10%
and Apple Inc.
AAPL, -0.87%
in which consumers use a company’s devices, software and even its store to buy things online, is far more costly that selling digital books and electronic readers. “Otherwise you are just an app in Google’s Play Store,” Gillis added.

Lately, it seems Amazon is entering a new business at every turn. On Monday came separate reports that the company plans a mobile payment system, and Amazon announced the launch of its own 3-D printing store. Customers can access more than 200 print-on-demand products, many that can be individually customized. And while it is nothing new for tech companies to venture into highly risky and unusual business, such as Google’s driverless car and Google Glass, Google’s far higher profits give it more breathing room to invest in far-flung projects that may never reach fruition.

Indeed, some investors are starting to wonder if Amazon, by trying to be all things to everyone on the Internet, is starting to do too much. From its work on delivery drones to streaming video devices to its new smartphone, Amazon has its fingers in all kinds of pies.

“The question we see that investors need to ask themselves is: What is the value of the company given the scale of the opportunity Amazon is pursuing?,” Gillis wrote. While profits have not yet been consistent or meaningful, he added, “Amazon has shown an ability to robustly attract consumers into its ecosystem.”

Still, building that ecosystem is costly — in many ways. Amazon shareholders will have to ask themselves whether Amazon is trying to do too much at their expense.

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